India’s retail inflation eased to 6.71% in July on an annual basis due to softening of food and crude oil prices, prompting expectations of a moderation in rate hikes by the Reserve Bank of India (RBI). 

Though the consumer price-based inflation (CPI) is the lowest since March, it is still above the RBI’s upper tolerance limit of 6% for the seventh straight month.

In June, retail inflation was at 7.01%. In the first three months of the current fiscal beginning April, retail inflation remained above 7%.

"CPI headline inflation for July has moderated in line with our expectations, led largely by food inflation, while the core inflation remains elevated and sticky," said Upasna Bhardwaj, chief economist at Kotak Mahindra.

"The coming few readings are expected to be a tad above 7%, with inflation likely to hover above RBI's upper threshold limit of 6% until January 2023. We expect repo rate at 6% by the end of 2022, followed by a pause and a shift to neutral policy stance," she added.

As per government data, food inflation in July 2022 moderated to 6.75% compared to 7.75% in June. But cereals inflation crossed 6% after a gap of 23 months. Lower buffer stocks of wheat have led to higher wheat prices. Inflation in vegetables eased to 10.9% from 17.37% in June.

Edible oil inflation eased to 7.52% from 9.36% in June. Sunil Kumar Sinha, principal economist at India Ratings and Research, said “the base effect will remain unfavourable till October 2022 and will continue to exert pressure on inflation.”

Inflation even in the US eased to 8.5% in July, down from 9.1% in June. The fear of global recession has slowed down economies and lowered commodity prices. The international oil benchmark, Brent crude, has fallen to below $100 a barrel. 

"While real-time prices of edible oils continue to ease till date in August, that of cereals (rice and wheat), pulses and some vegetables have started to move up. Food inflation alongside crude oil price and pass-through of costs by producers would define inflation in the near term while growth and supply chain pressures in the medium term," said Sreejith Balasubramanian, economist at IDFC AMC. 

India’s industrial output decelerated to 12.3% in June compared to a record high of 19.6% in May. Growth remained in double-digits for the second month in a row because of strong performance by the manufacturing, power and mining sectors, according to official data released on Friday.

The manufacturing sector expanded 12.5% in June, compared with 13.2% a year ago. The mining output grew 7.5%, and power generation increased 16.4% in June this year.